Gurgaon police record Reebok loss at Rs.11.3 cr

The chargesheet says the loss incurred due to “theft through secret warehouses” amounted to Rs.1.87 crore and that the loss on account of fraud through “franchisee referral program” and “falsification of accounts” was Rs.9.42 crore. Photo: Ramesh Pathania/Mint

Updated: Tue, Nov 20 2012. 12 03 AM IST

New Delhi: The extent of wrongdoing in the alleged fraud at Reebok’s Indian unit may be much lower than what has been claimed by Adidas AG, the owner of the sportswear maker, going by a chargesheet filed by Gurgaon police in the case.

According to the document, which was filed by the police at the Gurgaon district court on 12 November, the total loss incurred by Reebok India on account of alleged financial irregularities is to the tune of Rs.11.3 crore. Mint has reviewed a copy of the chargesheet.

The sum is just a fraction of the Rs.870 crore mentioned in a 21 May first information report (FIR), or police complaint, filed by Adidas as the extent of its loss on account of former employees siphoning off funds and creating “ghost distributors” and “secret warehouses”.

The chargesheet says the loss incurred due to “theft through secret warehouses” amounted to Rs.1.87 crore and that the loss on account of fraud through “franchisee referral program” and “falsification of accounts” was Rs.9.42 crore.

The police have not been able to ascertain claims on “cheating through fake sales”, and so-called “in-and-out” (a term used in inventory accounting) transactions. The police has also failed to put a figure on the losses due to “overstated accounts receivable”, “maintenance of parallel accounting records” and “fraudulent retrospective price increases”.

“As stated earlier, the financial irregularities could result in a re-statement of pre-tax income for the Adidas Group of up to €125 million in 2011 and prior years,” a Reebok India spokesman said in an emailed response to queries from Mint.

“Thus, there is no change in the Rs.870 crore figure reported in the FIR,” the spokesman said. “The loss on account of the aforesaid accounting fraud is yet to be fully ascertained by the firm. It would not be appropriate to make any further comment.”

Adidas, which acquired Reebok in August 2005, had accused two former executives, former managing director Shubhinder Singh Prem and chief operating officer Vishnu Bhagat, of perpetrating the fraud by siphoning off funds from the firm by creating ghost distributors and generating forged bills over the past five years.

The Gurgaon police has arrested 12 former executives, including Prem and Bhagat, on various dates beginning 20 September. They have been booked for falsification of records, diversion of funds, causing loss to the company and wrongful gain.

An official of the Serious Fraud Investigation Office (SFIO) said the agency is likely to submit its report on the case to the corporate affairs ministry by 30 November. This official, who did not want to be identified, said the lower estimate made by the police does not necessarily absolve the accused.

“The police is looking at the case differently from us. They are essentially looking at the criminal aspect, that is the violation of the criminal procedure code, while we are looking at the accounting aspect,” he said.